Loan Managers Are Upbeat on the ‘Belly’ of the Yield Curve

Investors would be better off focusing on the ‘belly’ strategy when it comes to debt investment, which means investing in two- or three-year securities amid a flattening yield curve, suggest India’s top bond fund managers. He said this would be the right time to get out of the ‘barbell’ strategy.

in barbell fixed income The strategy focuses on money market funds as well as smaller assets such as 15-year or longer bonds, but not much in the middle part or ‘belly’ of the yield curve. It helps in building a resilient investment portfolio in challenging times.

The barbell strategy works in a rising interest rate scenario, because typically the longer end of the yield curve moves first, followed by the shorter end of the yield curve.

“Now, the yield curve is perfectly flat. If the yield curve is flat, it means investors are not getting the benefit of the barbell.” As rates rise at the Mint Mutual Fund Conclave.

The “belly” is usually in and around the five-year segment. When we move from barbell to bailey, it means you are selling money market and long bonds and in two-year or three-year bonds are going.”

According to Mahendra Jaju, Chief Investment Officer – Fixed Income, Mirae Asset Investment Managers (India), “In India, the 10-year yield has increased from 5.75% to 7.50% and now around 7.30%, and short-term rates have also increased. I think, it would be a right investment strategy to switch from barbell to belly right now. The market is also appreciating it, which is why we are seeing traction in target maturity index funds with a maturity of around five years, ‘ said Jaju.

A major buzzword in the fixed-income segment over the past two years has been credit risk aversion, which forced Franklin Templeton MF to wind up six debt funds in April 2020 due to massive redemptions and illiquid portfolios. Rahul Goswami, Chief Investment Officer – Fixed Income, ICICI Prudential Mutual Fund said, “Corporate balance sheets are in a better position now. Second, the regulator has also acted promptly. There has been a lot of de-risking for credit risk funds as well. We Not seeing much issues, but quality issues are growing very fast.”

However, Shivakumar cautioned, “While I still see some value there, the extraordinary value we saw two years ago is not.”

Ankit Gupta, Founder, BondsIndia, while talking about the recent regulations following the growing interest in direct bond platforms to buy high-yield debt, said, “It is indeed a step in the right direction. It needs to be seen how SEBI regulates the bond market in terms of supply, credit quality etc.”

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